Sinking Fund: Envelope Method Your Savings

I Need to Start a Sinking Fund

One of my very few memories of money from when I was small was my mom explaining her Christmas Club to me. The bank auto transfers $20 from every paycheck into a savings account which they will disperse to you in October for holiday shopping. A memory that has stayed with me for years, but mostly relevant in December when I again remember that I didn’t save for Christmas all year long.

Fuck. It’s almost December again and well you can guess how much I have put away for holiday spending.

As I grow into my personal finance superpowers I am trying to keep my husband informed so we can make decisions together. My attempt at trying to explain the sinking fund went something like this:

Me: We need a slush fund.

Him: I’m not sure you need more wine.

Me: To save for important expenses. Like our medical expenses or to fix up the house.

Him:

Me: Besides, wine makes everything better. Do you think I should budget extra for wine?

Him: Probably. But how is wine connected to saving for medical expenses?

Me: because that’s what its called when you put money aside for important shit.

Him. I don’t think that’s the right word.

Me: slush?

Him: Well, now that I think of it, it does fit.

Maybe we I shouldn’t talk finances while drinking. Anyway, let’s talk about sinking funds. Prior to deciding to be a personal finance master I never heard the term sinking fund. It definitely seems like something I want to avoid (because who thinks sinking is a good thing) but essentially it is applying the envelope method to your savings. A way to handle reoccurring or large expenses that don’t happen every month.

To start I have chosen to just have one savings account at Capital One 360 because they offer a better rate than my local bank. The fact that they also don’t have a brick and mortar location will make any transfer requests take at least a day so there won’t be any immediate spending.

Balancing between saving and paying down debt is hard. Because my first inclination is to put every penny into debt. But emergencies happen. And large expenses happen. And I don’t want to be caught off guard.

Sinking Fund Categories

I want to focus on our debt snowball, and then saving money in an emergency fund before funding too many sinking funds. While saving for some known expenses is important, we need to cut spending so I’m trying to get this list down to a few essentials for now.

MEDICAL – doctors visits & medications. And between the three of us, this would need to be at least $1500. One of my medications isn’t available as a generic yet &  it’s expensive!

HOME – We are still fixing up the house so there is a lot to save for here, but getting someone to mow our annoyingly large yard next summer is top of the list. That will run us $40/wk so to have it mowed from May to October we are looking at $960.

ANNUAL PAYMENTS– We haven’t tallied this one yet. Amazon prime, a few software subscriptions. Probably less than $500

CAR EXPENSES– oil changes, new wipers, brake pads. The car is relatively new even though we bought it used. So we shouldn’t need too much for expenses. The peace of mind knowing I won’t have to worry if I can’t afford an oil change right now will be wonderful.

OTHER– This is to account for the things I will forget to budget for when expenses pop up that aren’t emergencies. A birthday gift, dinner out, trip to see the inlaws.

With the extra expenses of Christmas, we won’t be starting any sinking funds until January. But I will be pinning down the Mister to decide on how much we should put in each fund.

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